Once again, stocks have entered a “bear market” – defined as a decline of 20% or more from its peak. This has become a regular occurrence in recent years; declines around that level or more occurred in late 2018 and early 2020. However, unlike those previous occurrences, this instance appears to be following more “typical” bear market trends with regards to its depth and duration.
Historically, the average length of a bear market is about nine months and they have occurred every four and a half years on average. Thus far, what we are experiencing with stocks now is normal and well within “typical” ranges for market movement. Investors, however, have become accustomed to minimal declines or extremely quick recoveries over the last 13 years, so experiencing a pull-back lasting more than a few months may feel unsettling.
Adding to that unsettling feeling is the state of fixed-income investments this year. While bonds normally make up the “stable” portion of an investment allocation, they have not behaved that way in 2022. In fact, core fixed income had its worst calendar year start in 96 years. Combined with the stock market decline, investors were left with few available safe havens. Even cash has experienced an effective decline due to inflation. The good news is that many fixed income investments should see recoveries as the underlying bonds move towards maturity and the higher yields now available begin paying out. Like holding a CD – if sold early there may be a penalty, but if held to maturity the full value is received.
We’d like to take a slightly different approach for the remainder of this newsletter and direct you to the attached piece. This 2022 Midyear Update was recently authored by Brad McMillan, CFA®, Commonwealth’s chief investment officer, and provides clear synopsis of the market and economy, touching on many points that we had intended to cover in this communication. Rather than attempt to condense and summarize this data, we felt sharing the additional information would be worthwhile. We encourage you to take the time to read through it.
As always, please let us know of any questions or concerns.
The PWM Team
View More of Our Q2 Newsletter
Securities and advisory services offered through Commonwealth Financial Network ®. Member FINRA/SIPC, a Registered Investment Advisor. Morningstar is the source for any reference to the performance of an index between two specific points. Past performance does not guarantee future results. Statements regarding stock market returns refer to the S&P 500 index and bond index returns refer to Barclays Aggregate Index. S&P 500: The Standard & Poor’s (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization US stocks. The Barclays US Aggregate Index covers the dollar-denominated investment-grade fixed-rate taxable bond market The Morgan Stanley Capital International Europe, Australia, Far East (MSCI EAFE) Index is a capitalization-weighted index that tracks the total return of common stocks in 21 developed-market countries within Europe, Australia and the Far East. DJIA- A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including stocks that trade on the New York Stock Exchange Nasdaq- A market-capitalization weighted index of the more than 3,000 common equities listed on the Nasdaq stock exchange.
